sure to stay tuned for "options action" straight ahead in a few minutes. let's take a quick look at the day that was on wall street with the nasdaq being the under performer down by 11 points. the dow a gain of 81 points and the s&p 50 0 gaining by just 4. >> nice to have you along. thanks for being with us today and thank you for joining us. that does it for "closing bell." "options action" starts right now. this is "options action." tonight apple's pain your gain. shares of apple continue to fall but deign nathan has a trade that can triple your money in one month and help you get your money back. plus talk about a blockbuster netflix trade. teaming up for a trade that can make money if netflix shares go

up, down or nowhere at all. they will show you how you can make money, too. and which of these stocks do options traders see paying a biggest dividend? the action begins now. live from the nasdaq market site in the heart of new york's times square. i'm melissa lee. the dow closing at the high of the day and finishing up for the third straight week. the only stock america is watching tonight is apple. the national nightmare continues. apple is lower in nine of the last 11 sessions. it is below the death cross. people are panicking. the question now is, is this a broken stock or the buying opportunity of a lifetime? let's get into money and find out. it is important to understand why you think the stock is down before you can say whether or not it is a buying opportunity. >> there were so many reasons. if you thought that this stock would be down 9% on a week and

the s&p was basically flat to up a little bit. that is pretty crazy. there are stock specific things going on here. to me we had tax selling and a whole host of reasons that came up this week. i am going to break it down. it was not important what they are but the fever is broken in the name. the story is broken at least on this euphoric run. here is a company that is facing what most every other hardware company has faced, margin compression and now they are starting to miss earnings. the law of large numbers has just kicked in here and i think investors are going to have to get used to a 10% goer. >> the question is it now priced accordingly or is there more down side because it should anticipate earnings growth? >> i think what you are seeing is selling pressure.

i don't know that it is unreasonably priced based on fundamentals here. what is amazing is the volatility. you wouldn't expect to see it moving alt a 40% volatility. it is really elevated the options premium. i look at the stock and think where this stock is concerned i would not use options to make options bet long. >> using short option positions to take a directional bet. you have to define a risk because mike is absolutely right. this thing has really fought around. on wednesday it lost more market cap than 420 of the names in the s&p 500. it really had a run here to the down side. i don't think the down side run is broken here. i think it is still pretty ugly and the momentum is to the down side. i think the major reason is margin compression particularly in tablets. if apple has more competition in

a tablet space then they are not going to make as much money across the platform. >> what is key to understanding the trade that dan is going to understand is the point that you made. the volatility in apple is extremely high. i believe it is approaching record levels at this point. >> it is. i think the thing that you should be thinking about here is a really good example. when the stock was $550 the jan 550 call was like a 7% buy. you can sell that for almost 7% of the stock price. that is staggering. you can sell for 14%. those are huge, huge swings in the value of this enterprise. >> one of the things we were talking about the cliff, i want to look at december and isolate this time period. the technical set up like scott said, the momentum is broken and it is lower. to me when you look at 500 that low was 505 there is nothing below that until 450.

this could start to cres sendo. i do not want to play with apple options. the premiums are too high. you will not make money on a directional basis. >> what are you using? >> a put spread. apple makes up about 17%. of the top eight technology names in the basket make up 55%. my guess is that some of the apple negative sentiment could actually move towards like google, amazon is still up a lot. oracle is up a lot. i want to use a put spread in the qs. >> so dan is bearish. he is buying a put spread one of the most common strategies. it is always good to crack open the play book and review the structure. buy one put and sell a lower strike put of the same expiration to cut your cost. how do you make money? you want the stock to fall to the strike of the short put where you make the most money and where your profit as a

capped. >> we would not short this stock here. the way that stock moves from 505 to 590 in a week and a half is danger time. i want to use the k. the q was at 65. i paid 55 cents. i bought one quarterly for 95 cents. to reduce the cost i sold one of the december 31 puts against it for 40 cents. so the max cost was 55 cents. my max profit is $1.45. and my max loss is 55 cents between $63.45 and 64. that is about a dollar away. it gives me a 5% ban where it can get back to. >> key is there is a belief that the rest of the basket is going to go lower. >> i think that is a really good

point because one of the names we saw highlighted is amazon that we think of as having a very stretched variation. it would drag the volatility of the index higher. we have other factors that have been beaten to death. i think making a bearish bet in the index is a good idea. close to a quarter of the distance we are looking for a good risk/reward relationship. >> i also like to think dan is branching out because a lot of the names could have problems. microsoft could have problems. if we get negative earnings preannouncements that aren't so good or a problem with the fiscal cliff then the whole index is pressured. maybe apple's fortunes would be better had they included this in their devices. stocks versus options. stocks tend to go up over time.

if you are short them you could be on the hook for unlimited losses. risks just 55 bucks. let's move on to our next trade. shares of netflix in the news. yesterday the streaming giant received a wells notice over comments company ceo made on facebook. the story that manages to combine the words facebook, disney and netflix. the question now is what about the stocks? let's call to the charts and get answers with carter braxtonworth. >> all the same time frame and then a comparative chart. here is netflix over the one year period. what is important is that a well defined down trend is broken. the next chart same time frame draws the lines a different way. it is also the one year chart. it shows the symmetrical

bottoming out process. we are toying with a break above the neck line. we think it is going to about 100. the next chart it's the same time frame, nice rounding bottom. anyway you cut it this stock is bottoming out. take a look at the comparative chart. this shows netflix relative to other so-called left for dead but recently coming to life names. rim, netflix, green mountain coffee, nokia. huge correlations coming off the bottom. you want to be in things that are working. this stock is working. we think it goes to 100 closed today at 86. >> the other term is the carl icon, an activist investor. >> i think if you had to take a look at the fundamentals of this company it will be hard to make a bullish choice here.

forecasting to go about 12% year to year. hoping as he often does could be an amazon. amazon stock -- you can use your valuation and buying netflix. i talked to people and a lot of people think it is going to fill the gap to 100. if you are going to play along with that then that is fine. valuation is probably the most compelling reason. >> mike is selling a put. usually we buy puts on the show. when you sell a put you want the stock to stay above the strike of the put that you sold before

expiration. because you are short the put you could be forced to buy the stock at that put stock price even if it falls below that level and that could mean losses. some people think of the strategy of a limit order for which you get paid. >> i'm looking at selling the january 80 puts for 4.10. the stock falls i could be compelled to purchase the stock at $80 net of the $4 i collect. i am going to own it around the 76 level. that is almost stand still yield of 5% over 40 days. i'm trying to capitalize of the fact that options premiums are bit up. this is a stock that has been moving around quite a lot so this is one of the ones where you hang on to your hat. >> he is looking at you like you have two heads. >> i wouldn't sell that put with mike's money. the way this stock has been moving around this goes back to apple. it is hard to make directionalal

bets with a stock with high volatility like this and get the direction right. i don't like the put sale because i think the range is 60 or 100 potentially. to me the risk/reward. >> the question isn't whether or not you think there is down side risk to either purchasing the stock or trading options because there is. if you buy the stock at $85 you have a lot more to lose than if you sell the put for $4.10. the stock goes side ways from now until expiration. >> break the tie here. whose side are you on? >> i am on your side. i think the way to look at this is this is a limit order to buy the stock but it eats up margin because you have to be ready to buy the stock. this is an investment strategy. >> one more time on the stocks versus options here. want to buy netflix it will cost about $85 a trade. in mike's put sale he can make money whether the stock goes up or down. he may have to buy netflix for

$80. with the money he collected he gets along at $75.90. we will see carter later on. meantime have a question, send us a tweet. our website has revamped. you will find great trader blogs, educational material and so much more. here is what is coming up next. now there is a winning bid. mike and carter made a bullish bet on ebay. with the stock up 9% they have nearly doubled their cash. how did they do it? find out when "options action" returns. the names that were heating up. need a neighborhood pharmacy this drawing store chain is at the corner of happy and healthy. options traders rushed to stock

up on calls. who is it? the answer when "options action" returns. [ male announcer ] trading's like a high-speed train. and you don't want to miss it with thinkorswim by td ameritrade. you get knock-your-socks-off tools, simple one-click orders, real-time paper trading to hone your skills, plus anytime you need it support. ♪ stocks, options, futures, and forex. get your trading on track. thinkorswim by td ameritrade. trade commission free for 60 days, plus get up to $600 when you open an account.

make sure the news keeps coming with thinkorswim by td ameritrade. use the news links breaking stories with possible breakout stocks, options with potential opportunity, futures and forex with in-depth analysis. it's an all-you-can-eat buffet for all things trading. thinkorswim by td ameritrade. it doesn't just deliver news. it's making news. trade commission free for 60 days, plus get up to $600 when you open an account. where were options traders pumping up this week? walgree walgreens. you heard how walgreen calls were act chb. do you think this has to do with

the special dividend buzz? >> that is certainly what is going on here. call buyers looking for likely candidates to issue special dividends. walgreens has big insider ownership. some of the companies for examp example oracle, walgreens might issue a special dividend. time for the upside call where we take a look back on some of the winning trades and give you the next move. carter got bullish on ebay. shares have rallied some 10% but made seven times that and here is how. on "options action" it is how we make winning bids, risk less to make more skm heat index that is what they did with their bullish bet on ebay. carter thought ebay shares were worth clicking on. >> we like it here. >> if carter likes a stock it has to be worth a bid mike thought. buying it outright 100 shares could set you back almost 5

grand. so to spend less mike bought the january 50 strike call for 2.25. mike needs to raise above the price by january expiration. $2.25, we ain't bidding on rare art here, buddy. mike, how can we spend less? >> i'm going to sell the 55. crea mike managed to cut his costs by more than a third to just $1.40.

now mike sees profits of ebay shares rise above the 50 strike call by more than the $1.40 he spent or above 51.40 by january expiration. but there is a tradeoff. by selling the higher strike call mike capped this profits. since the time of the trade shares of ebay have risen by 8% making this trade a winner. now they must make a choice, stay in the trade and hope for more gains or close up and find the next stock to bid on. >> "options action" biggest fan. only wants to know one thing. >> before we answer that let's see how much money was made had you bought ebay at the time of the trade, sold today for 2.35. that is a return of almost 70%. what should they do now?

let's go back to the charts? >> i think you have to walk away from this. it has three quarterly gaps and the stock is extended. take the money and run. >> the stock is extended. >> we are a little bit closer to the strike that we are long. what ends up happening now is we are starting to decay away. >> exit the trade. do you think that is a wise move especially going into the holiday shopping season. >> it is making five, six, seven year highs. this is on a lot of people's buy lists. when you look out from 2013 there is expected earnings growth of about 17%. it trades it about 17 times earnings. there are very few stocks you can see. >> if you want to get long this thing or roll up and out at that point that is probably the way. what you should do going into the holidays is take the money

and run and look for strategic opportunities. >> the stock would have to rally to get to the max profit on this trade. if it is already overextended how is it going to get that high? the math is working against you. >> the way you frame it it sounds like you like the pay pal but because of where the stock is you want to take the money and run. you had a bearish trade on visa. it seems like very similar companies. pay pal is ebay. >> these guys are in wonderful businesses. to me when i look at these things they are both pretty stretched. we have seen a lot of optimism for a long period of time in both. you can have a good company. that is what we are looking for is possibly better price. >> e bay is up 70% year to date. if we look at the cliff you may want to take profits just for

tax reasons if you think capital gains caps are going up. >> it ends up being an expensive 10%. >> you mentioned other opportunities within this space where would you look to? >> i think these two guys are c occupying the sweet spot. there aren't many good opportunities outside of it. the valuation is getting to levels that are budding up. >> reminder as we head to break if you want updates be sure to follow us on twitter. finally if you are on facebook stay post ed on our trades at facebook.com/optionsaction. final call is after this as well as an unbelievable video you will not want to miss.

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make sure the news keeps coming with thinkorswim by td ameritrade. use the news links breaking stories with possible breakout stocks, options with potential opportunity, futures and forex with in-depth analysis. it's an all-you-can-eat buffet for all things trading. thinkorswim by td ameritrade. it doesn't just deliver news. it's making news. trade commission free for 60 days, plus get up to $600 when you open an account.

sit, stay, drive. from learning to heal, sitting behind the wheel a shelter teaching dogs to drive all part of a publicity stunt to show dogs can be trained to do things. that is tonight's optional viewing. how does he reach the brakes? >> how does he keep his eyes on the road? >> time for the final call. >> this week's web extra is similar to dan's trade how and why to buy a put spread in apple? >> i am not in the camp of playing directional long trades. i want to use qs. i think it makes a new low. >> the fundamental story in

netflix is not that great. if you are thinking about buying the stock selling the put is a somewhat better play. i'm melissa lee, thanks for watching. for more options action go to our website. don't go anywhere. "money in motion" is up after this break. [ male announcer ] trading's like a high-speed train. and you don't want to miss it with thinkorswim by td ameritrade. you get knock-your-socks-off tools, simple one-click orders, real-time paper trading to hone your skills, plus anytime you need it support. ♪ stocks, options, futures, and forex. get your trading on track. thinkorswim by td ameritrade. trade commission free for 60 days, plus get up to $600 when you open an account.

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